The Commonwealth Bank of Australia's proposed spin-off of the CFS Retail Property Trust has won strong market support -- a contrast to the chilly market reception towards Westfield Group's plans to recast its local and international operations.
Controversy has centred around the pricing of the management rights of the Westfield Retail Trust, with the level of about $1.7 billion seen as too high. WRT chairman Dick Warburton has received a tough reception from institutional investors, with advisers Morgan Stanley and UBS being told that the deal may not win support.
Moelis analyst Simon Scott says the deal will take both Westfield and WRT in the right direction and the merger pricing is justifiable.
In a note that is gaining market traction he argues that simply recutting merger ratios is not the best way to deal with unhappiness among WRT investors.
Instead, Scott says the size of the overall Westfield Australasian pie should be lifted and a larger share of the rise should be given to WRT owners. One way of doing this would be for Westfield and WRT to turn on share buybacks, lifting the net asset value of the overall group.
More radically, a couple of half stakes in landmark assets like Westfield Bondi Junction or even Westfield Sydney could be sold off. Deals could be struck at healthy premiums to book values as foreign investors are chasing premium assets and the move would also generate fee income.
WRT could also buy the half of the listed Carindale Property Trust not owned by Westfield, a way of boosting its funds from operations.